Buying a house after a Chapter 7 discharge is not impossible. You’ve got a fresh start, after all! You may need to wait between two to four years, though, depending on the type of bankruptcy you had and the loan you want.

Bankruptcy is challenging—but it’s not the end of the road. Can you buy a house after Chapter 7 bankruptcy? Yes! However, you will need to follow certain steps to maximize your chances of approval.

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has written this guide to help people buying a house after Chapter 7 bankruptcies. It covers waiting periods, types of loans available, and steps to prepare for the mortgage application process.

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How long after bankruptcy can you buy a house?

Before you can buy a house after a bankruptcy, a judge must discharge that bankruptcy. How many years that will take depends on the type of bankruptcy you had and the type of home loan you want.

Chapter 7

Chapter 7, aka liquidation bankruptcy, is the most common type of bankruptcy. It clears your debts at the cost of lowering your credit score.

Chapter 7 bankruptcies stay on your record for 10 years, as do all your collections and late payments.

If you’re trying to enter bankruptcy, you may either face a dismissal or discharge. Dismissal is when you petitioned to be allowed to enter bankruptcy but the court determined you did not qualify. Discharge is when the court orders that all your debts be forgiven and can happen approximately four months after filing for Chapter 7.

From the time your Chapter 7 bankruptcy is dismissed or discharged, you must wait:

At least 4 years before you can qualify for a conventional home loan

At least 3 years before you can qualify for a government-backed mortgage loan (USDA)

At least 2 years before you can qualify for FHA or VA loans

These are the minimum waiting periods as set out by specific programs. Some lenders could require you to wait longer.

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Chapter 13

A Chapter 13 bankruptcy is less serious than a Chapter 7. It reorganizes your debt rather than wiping it clean. Your credit score is less impacted, and you should still own some of your assets. Chapter 13 bankruptcy stays on your record for seven years.

Your waiting period for buying a house depends on how the court handled your case.

If the court dismissed your bankruptcy, you must wait 4 years

If the court discharged your bankruptcy, you must wait 4 years from the filing day and 2 years from the dismissal date

Government-backed loans are more readily available than conventional loans for people with a Chapter 13 bankruptcy.

You’ll have to wait one year to apply for a USDA loan. For a VA or FHA loan, you must simply have your loan discharged by the court before you apply.

Pro Tip You may be able to qualify for a mortgage in just one year if you can prove that your bankruptcy was caused by extenuating circumstances out of your control that are unlikely to reoccur.

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What type of mortgage can you get after bankruptcy?

Technically, you’re still eligible for any type of mortgage after filing for bankruptcy. However, some loans are easier to get than others.

FHA loans have a shorter waiting period than all other types of loans. Their application requirements are less stringent, too. You can have a

lower credit score

(as low as 580 points) and still qualify for an FHA loan. You could even qualify with a score of 500 if you have at least a 10%

down payment

saved up.

USDA and VA loans are also accessible to people who’ve experienced financial hardship, but you may not qualify unless you completed your repayment plan (for Chapter 13 bankruptcies). There is no stated minimum credit score for these loans, but you’re more likely to be approved with a score of at least 640.

Of course, you’ll need to reside in a qualifying agricultural area to be eligible for a USDA loan and be a veteran or surviving spouse to be eligible for VA loans.

Conventional loans will be the hardest to get for people who have experienced bankruptcy. You’ll need a

620 credit score

at a minimum.

Pro Tip You may be required to get written permission from the bankruptcy court before you can get a mortgage.

How to apply for a mortgage after bankruptcy

Buying a house is overwhelming for everyone, but especially if you have a bankruptcy on record. Here’s a quick step-by-step guide to improve your chances of qualifying.

Repair your credit and manage debt

While you wait to qualify, improve your credit score. The average credit score after a Chapter 7 bankruptcy is between the low 400s and the mid-500s.

You may need to reestablish your credit if it’s been wiped clean. The best way to do this is to get a secured credit card where you put down a deposit with the company. This becomes your line of credit, and you’ll pay it off each month.

It’s easy for people with a low credit score (or bankruptcy) to get a secured credit card. You can also get a

cosigner

on a new credit line if you have a trusted person who is willing to share the financial risk.

It’s also helpful to pay down your debt. Avoid taking on additional debts, like a car loan or personal loan. The less you owe, the more attractive you look to lenders.

Lenders will look at your debt-to-income (DTI) ratio, which is the sum of your monthly debts divided by your gross monthly income, when considering your application for a mortgage. Your DTI should be less than 50% at a minimum.

Meanwhile, make all your credit card and loan payments on time. Enroll in auto-pay services so you don’t have to worry about remembering the payment date.

On-time rental, utility, and

insurance

payments may count as evidence of nontraditional credit for some lenders.

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Write a letter of explanation

Did you know that you have the option to include a letter with your application? A letter of explanation is a great way to provide extra context about your financial situation, especially since bankruptcy is a major red flag.

Include an explanation of the circumstances that led to your bankruptcy filing. Most importantly, describe any changes to your financial life since filing for bankruptcy. Mention things like paying off debt, getting job training, and saving up an emergency fund.

Your letter should include:

Date and type of bankruptcy filing

Reason for filing

Evidence of reason for filing

Explanation of change in circumstances

Get preapproved for the mortgage

Once the waiting period is up and you’re financially ready, you can apply for

preapproval

! Preapproval is a process where a lender assesses your financial situation and tells you how much money you qualify to borrow ahead of time.

Preapproval helps you set a realistic budget and limit your search to homes you can actually afford.

A letter of preapproval also helps real estate agents and sellers understand that you’re qualified despite your financial history. In some instances, it can be the deciding factor in whether the seller takes your bid.

To apply for preapproval, you will need to provide your Social Security number, bank statements, pay stubs, W2s or 1099s, tax returns, and bankruptcy documents. It’s helpful to show that your

income source

is expected to be steady for three more years.

Note that this is

not the same as prequalification

. A prequalification is not as useful as preapproval since it doesn’t usually require a verification of your assets.

Respond to lender inquiries

It may seem like everything’s out of your hands once you’ve submitted your preapproval application with a letter—but you still need to be responsive to any additional lender inquiries.

As the lender reviews your assets, debt, and bank statements, they may have questions for you about your bankruptcy. Reply honestly and expediently to improve your chances of getting a preapproval.

Once you have a preapproval letter in hand, you can start viewing properties.

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Summary: Can I buy a house after Chapter 7?

If you file for a Chapter 7 bankruptcy, you can still buy a house and take out a mortgage, but you’ll have to wait longer to obtain a loan.

You may need to wait at least four years to qualify for a conventional loan. For USDA, FHA, and VA loans, you could wait for less.

If you have a Chapter 13 bankruptcy instead, you may need to wait between two and four years to obtain a loan.

The most important things to do while you prepare to buy a house are to:

Repair your credit

Pay off your debt

Save up a big down payment

Then, gather your materials and reach out to a lender for preapproval.

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Home insurance rates after bankruptcy

It’s quite possible that your insurance rates will be more expensive after you file for bankruptcy, as you’ll be considered a higher risk to insure due to your lower

credit score

But there’s no reason to fret. If you pay your premium on time, there is no reason why you can’t get the best insurance policy for your home, especially if you use

Jerry

to shop for affordable quotes.

Jerry is the top-rated car and home insurance brokerage app for a reason: it’s fast, and you’ll get quotes from dozens of top companies. Plus, Jerry can help you unlock savings by

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FAQs

Can I buy a house one year after a Chapter 7 discharge?

It’s rare, but there are some circumstances in which you’d qualify to buy a house within a year of Chapter 7. Your bankruptcy must have been caused by a situation beyond your control (like serious illness), and you must be able to demonstrate an ability to manage your finances responsibly now.

Is it hard to buy a house after bankruptcy?

You’ll face challenges, to be sure. You may only qualify for higher interest rates and you may be required to pay a bigger down payment. But it’s not impossible! Just be realistic and organize your documents carefully.

What about multiple bankruptcies?

The waiting period to obtain a loan increases to at least five years if you have multiple bankruptcies on record. If you can prove your hardships were caused by extenuating circumstances, the waiting period can go down to three years for a conventional loan.

Note that if you’re applying with someone else and you both have a bankruptcy on record, that doesn’t count as multiple bankruptcies.

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